Arbitration is meant to be an alternate to litigation. Yet arbitration is itself the subject of much litigation over who must arbitrate, what must be arbitrated, whether and how the arbitration should proceed, and the deference courts must show to arbitration awards. This blog is intended to be a resource for litigators, in-house counsel, arbitrators and anyone else who wants to stay on top of the many thorny issues that arise under the Federal Arbitration Act.
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One year ago, the NLRB ruled in D.R. Horton, Inc. that it is a violation of federal labor law for employers to require their employees to sign arbitration agreements waiving class actions, and that any arbitration agreements waiving class arbitration would be void. This week, the Eighth Circuit became the first federal circuit court to refuse to enforce the NLRB’s ruling.

In Owen v. Bristol Care, Inc., __ F.3d __, 2013 WL 57874 (8th Cir. Jan. 7, 2013), an employee sued her employer for violations of the Fair Labor Standards Act (FLSA), and sought to proceed as a class action. The employer moved to compel arbitration, based on the employee’s arbitration agreement which specifically covered “claims for violation of any federal … statute … including but not limited to … the Fair Labor Standards Act” and which also waived any class actions. The district court denied the motion, based largely on the D.R. Horton ruling.

The Eighth Circuit reversed, finding that the class waiver is enforceable and mandating the employee arbitrate (on an individual basis, I would presume). It relied on two legal propositions in reaching that conclusion. First, for a statute to override the FAA, it must be clear in the text or legislative history of that statute. The Eighth Circuit found nothing in the text or history of the FLSA indicating that Congress intended that statute to be outside the purview of the FAA. Second, the Eighth Circuit created distance from the D.R. Horton ruling. It distinguished the facts of D.R. Horton before noting that “even if D.R. Horton addressed the more limited type of class waiver present here, we still would owe no deference to its reasoning.” It cited six federal district courts that had reached similar decisions (by my count there are at least eight), and two that had upheld the NLRB ruling.

This seems to put employers in a bind. On one hand, the NLRB considers it a labor law violation to have employees sign arbitration agreements that waive class actions, and on the other hand, the federal courts will enforce those same arbitration agreements. So, what does a rational employer put in its employment contracts?? It depends whether they view the risk of an NLRB penalty as greater or smaller than the reward of avoiding class actions.